The Spectre of Monetarism

Speech given by Mark Carney Governor of the Bank of England – Roscoe Lecture, Liverpool John Moores University on 5th December 2016

Real incomes falling for a decade.

The legacy of a searing financial crisis weighing on confidence and growth.

The very nature of work disrupted by a technological revolution.

This was the middle of the 19th century.

Liverpool was in the midst of a golden age; its Custom House was the national Exchequer’s biggest source of revenue.
And Karl Marx was scribbling in the British Library, warning of a spectre haunting Europe, the spectre of communism.

We meet today during the first lost decade since the 1860s.

In the wake of a global financial crisis.

And in the midst of a technological revolution that is once again changing the nature of work.
Substitute Northern Rock for Overend Gurney; Uber and machine learning for the Spinning Jenny and the steam engine; and Twitter for the telegraph; and you have dynamics that echo those of 150 years ago.

Then the villains were the capitalists. Should they today be the central bankers? Are their flights of fancy promoting stagnation and inequality? Does the spectre of monetarism haunt our economies?

These are serious charges, based on real anxieties. They merit sober, objective assessment.

This evening I want to discuss the role of monetary policy in this time of great disruption. But first I will focus on the underlying causes and consequences of weak real income growth and inequality across the advanced world.

That’s because any doctor knows that the importance of diagnosing the underlying causes of the patient’s symptoms before administering the cure. Monetary policy has been keeping the patient alive, creating the possibility of a lasting cure through fiscal and structural operations. It has averted depression and helped advanced economies live to fight another day, so that measures to restore vitality can be taken.

II. The Great Disruption
During the last quarter century there have been a series of profound disruptions to the way we work, trade, consume and live. The fall of the Berlin Wall and the reforms initiated by Deng Xiaoping led to the integration of a third of humankind into the global labour force. Those workers are increasingly linked by global supply chains that have spread from goods to services. In parallel, an explosion of technological innovations has brought access, at the click of a virtual button, to the sum of human knowledge to three-and-a-half billion people.

The deepening of the symbiotic relationship between global markets and technological progress has lifted more than a billion people out of poverty, while a series of technological advances have fundamentally enriched our lives.

Globally, since 1960, real per capita GDP has risen more than two-and-a-half times, average incomes have begun to converge, ii and life expectancy has increased by nearly two decades.

Despite such immense progress, many citizens in advanced economies are facing heightened uncertainty, lamenting a loss of control and losing trust in the system. To them, measures of aggregate progress bear little relation to their own experience. Rather than a new golden era, globalisation is associated with low wages, insecure employment, stateless corporations and striking inequalities.
These anxieties have been compounded by the twin crises of solvency and integrity at the heart of finance. When the financial crisis hit, the world’s largest banks were shown to be operating in a “heads-I-win-tails-you-lose” bubble; widespread rigging of some core markets was exposed; and masters of the universe became minions. Few in positions of responsibility took theirs. Shareholders, taxpayers and citizens paid the heavy price.

As a consequence of all these developments, public support for open markets is under threat.
Turning our backs on open markets would be a tragedy, but it is a possibility. It can only be averted by confronting the underlying reasons for this risk upfront.